Brazil mid-September inflation down 0.37% on lower taxes, lower fuel costs

SAO PAULO Reuters -- Brazil's consumer prices went down in the month to mid September, government statistics agency IBGE said on Tuesday, as fuel costs continued to drop on the back of lower taxes and price cuts by state-owned oil firm Petrobras.

The local IPCA 15 index fell 0.37% in the month to mid-September, a deeper drop than the 0.2% expected by analysts polled by analysts, though slowing down from the 0.73% fall seen in the previous month.

Inflation in the 12 months to September hit 7.96%, which is well below the 8.14% forecast by economists, likely backing the central bank's recent decision to suspend its aggressive rate hiking cycle.

In August, when Latin America's largest economy posted the lowest mid-month inflation rate in almost three decades, this month's drop was caused by the transportation sector, in which costs fell 2.35%, according to IBGE.

Oil giant Petroleo Brasileiro SA reduced refinery gate gasoline prices twice since mid-August, leading to lower prices at the pump.

Inflation drop in September was not widespread, as prices fell in three of the nine groups of products and services surveyed, according to IBGE, communication, food and beverages, and transportation.

It noted that clothing, healthcare and housing prices went up in the period.

Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, said that inflation was decelerating quickly thanks to the effects of tax and the lagged impact of monetary tightening.

We expect economic growth to be slowed over the coming months, due to the resilience of domestic demand. The central bank of Brazil last week decided to keep interest rates unchanged at 13.75%, leading to a tightening of the index after 12 consecutive increases aimed at curbing high inflation.

The meeting minutes showed that most of the monetary policy committee members agreed that inflation expectations supported the end of the tightening cycle, though a further residual rate hike was widely debated.

William Jackson, chief emerging markets economist at Capital Economics, said the inflation figures showed that the monetary tightening cycle was over.

He said that the central bank will wait until the middle of next year before deciding to cut interest rate cuts because of the fact that inflation remains very strong, particularly outside the food and energy categories.